Guide
Novated Lease vs Car Loan: Which Is Right for You?
If your employer offers salary packaging, you've probably wondered whether a novated lease beats a straightforward car loan. The honest answer: it depends on your tax rate, your employer, the car, and how long you'll stay in your job. Here's how the two actually compare, in plain English.
This guide is general information only — it doesn't consider your personal circumstances, and tax outcomes depend on your situation. Speak to your accountant or adviser about the tax side.
| Car Loan | Novated Lease | |
|---|---|---|
| How it works | You borrow to buy the car and repay the lender directly. The car is yours from day one. | A three-way agreement between you, your employer and a leasing company. Payments come out of your salary, partly pre-tax. |
| Who owns the car | You do (the lender holds security over it until the loan is repaid). | The leasing company owns it during the lease. You can usually buy it at the end by paying the residual value. |
| Tax treatment | No personal tax benefit for private use. Business use may be deductible — ask your accountant. | Part of payments come from pre-tax salary, which can reduce taxable income. Fringe Benefits Tax (FBT) usually applies, commonly offset using the employee-contribution method. |
| Electric vehicles | Standard treatment — no special exemption. | Eligible EVs under the luxury car tax threshold are currently FBT-exempt, which can make novated leases unusually attractive for EVs. |
| Running costs | You pay fuel, insurance, rego and servicing separately, from after-tax money. | Usually bundled into the lease payment, with some paid pre-tax. Convenient, but bundled budgets can include margins — check the line items. |
| If you change jobs | Nothing changes — the loan is yours regardless of employer. | The salary deductions stop. You typically take over payments yourself, transfer the lease to a new employer (if they offer novation), or pay the lease out. |
| At the end | The car is yours outright once the loan is repaid. | A residual (balloon) amount is owing — pay it to keep the car, refinance it, or trade the car in and start again. |
A car loan tends to suit you if…
- You want to own the car outright
- Your employer doesn’t offer salary packaging
- You change jobs often or your income varies
- You’re buying used or from a private seller
- You want simple, predictable finance with no residual surprise
A novated lease tends to suit you if…
- Your employer offers novated leasing
- You’re on a higher marginal tax rate
- You’re considering an FBT-exempt electric vehicle
- You like running costs bundled into one payment
- You’re comfortable with a residual amount at the end
Where Your Lending Friend fits in
We're finance brokers — we arrange car loans from a panel of 40+ lenders, and we don't write novated leases ourselves. If a car loan is the right fit, we'll compare your options across the panel. If a novated lease looks better for your situation, we'll tell you straight and point you in the right direction.
Either way, our Car Concierge can still find and negotiate the car itself — whichever way you finance it.
Weighing It Up?
Tell us your situation and we'll compare car loan options from 40+ lenders — and tell you honestly if a novated lease looks like the better path.
Getting a quote won't affect your credit score, and nothing is sent to a lender until you give the go-ahead.
Prefer to talk? Call us or send us a message.